Benchmark 10-year yield slides below 1.4% on safe-haven bid



By Karen Pierog

CHICAGO, Dec 3 (Reuters) - U.S. Treasury yields tumbled on Friday in choppy trading, with the 10-year yield dropping below 1.4% for the first time since September as a risk-off sentiment took hold in markets, sending Wall Street lower.

The benchmark 10-year yield US10YT=RR fell to its lowest level since Sept. 23 at 1.335%. It was last down 8.9 basis points at 1.3598%. Yields move inversely to prices.

The 30-year yield US30YT=RR dropped to its lowest since Jan. 5 at 1.667%. It was last 8.4 basis points lower at 1.6837%.

The two-year yield US2YT=RR , which reflects short-term interest rate expectations, was last down 2.8 basis points at 0.5913%.

Wall Street ended lower with uncertainty over the Omicron coronavirus variant one of the factors weighing on the market.

"There definitely is a broader risk-off tone. Stocks are going down led by high-beta names," said Tom Simons, a money market economist at Jefferies in New York.

Analysts also pointed to low liquidity and recent volatility-spurred repositioning in Treasuries that may have exacerbated moves.

Yields rose earlier in the session after the market digested closely watched jobs data that showed employment increased far less than anticipated in November, but was unlikely to be a game changer for the Federal Reserve.

Nonfarm payrolls increased by 210,000 jobs last month, while the unemployment rate dropped to 4.2%, the lowest since February 2020, from 4.6% in October, the U.S. Labor Department reported.

Economists polled by Reuters had forecast payrolls advancing by 550,000 jobs.

"On the surface, the numbers came in disappointing because they did not match expectations, but it was not a weak report," said Kevin Flanagan, head of fixed income strategy at WisdomTree Investments.

As for the Fed's plans to begin tapering its bond purchases, Flanagan said the report might allow the central bank to delay increasing the pace of the taper until January.

"Perhaps this gives the Fed a little bit of a breathing room, but it doesn't change the overall calculus. They will speed up the taper programs and more than likely raise rates in the second half of next year," he said.

The closely watched gap between two-year and 10-year note yields US2US10=TWEB narrowed to 74.40 basis points, the lowest since December 2020. It was last about 6 basis points flatter at 76.80 basis points.

The five-year note and 30-year bond US5US30=TWEB yield curve was about a basis point flatter at 54.40 basis points.

The yield on the 30-year Treasury Inflation-Protected Securities (TIPS) US30YTIP=TWEB hit an all-time-low close of -0.597%, according to Tradeweb.

Other data on Friday showed U.S. services industry activity unexpectedly rose in November, hitting a record high as businesses boosted hiring. But there was little sign that supply constraints were easing and prices remained high.

Looking ahead to next week, the U.S. Treasury will auction $54 billion of three-year notes, $36 billion of 10-year notes, and $22 billion of 30-year bonds.

"It's not going to be like this race to get supply so much as it's going to be a risk-management process in terms of making sure you don't get caught the wrong way as the market swings around," Simons said, regarding the upcoming auctions. December 3 Friday 4:04PM New York / 2104 GMT

Price

Current Net

Yield % Change

(bps) Three-month bills US3MT=RR 0.0525

0.0532

0.000 Six-month bills US6MT=RR

0.095

0.0964

0.002 Two-year note US2YT=RR

99-210/256 0.5913

-0.028 Three-year note US3YT=RR

99-178/256 0.8551

-0.040 Five-year note US5YT=RR

100-140/256 1.1368

-0.073 Seven-year note US7YT=RR

101-72/256 1.3074

-0.085 10-year note US10YT=RR

100-36/256 1.3598

-0.089 20-year bond US20YT=RR

103-196/256 1.7749

-0.078 30-year bond US30YT=RR

104-124/256 1.6837

-0.084

DOLLAR SWAP SPREADS

Last (bps) Net

Change

(bps)

U.S. 2-year dollar swap

22.00

-0.50

spread

U.S. 3-year dollar swap

21.75

0.00

spread

U.S. 5-year dollar swap

10.75

0.25

spread

U.S. 10-year dollar swap

8.50

1.75

spread

U.S. 30-year dollar swap

-14.25

1.75

spread


Reporting by Karen Pierog; Editing by Mark Heinrich, Dan Grebler and Sandra Maler

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